Fragmentation and multinational production

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Abstract

This paper examines the consequences of falling transport costs for intermediate goods, and shows how this leads to the spatial fragmentation of production. As firms divide their production between countries they become either vertical multinationals (if upstream activities are labour intensive) or horizontal multinationals (if downstream activities are labour intensive). In the former case the volume of world trade increases, and in the latter it falls. Fragmentation need not narrow international factor price differences, which depend on the factor intensity of the activities that relocate.

Original languageEnglish
Pages (from-to)935-945
Number of pages11
JournalEuropean Economic Review
Volume43
Issue number4-6
DOIs
Publication statusPublished - Apr 1999
Externally publishedYes

Keywords

  • Fragmentation
  • Globalization
  • Multinational firm

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